Business Cycles and Macroeconomic Policy Coordination in Mercosur

Martin Gonzalez-Rozada and José Fanelli

No 328, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: Abstract: The paper analyzes cyclical comovements in the Mercosur area differentiating idiosyncratic from common shocks. In the Mercosur (or any region for that matter) shocks can be country-specific, affecting only one country or a specific set of countries (for example, a weather-related shock, a domestic policy shock); or they can be common to the entire region (for example, a change in the conditions in international capital markets or a world recession). Propagation mechanisms, in turn, are important because a shock that was initially country-specific, originating in one country, might eventually spillover to others. We build on the unobserved component approach to decompose the Mercosur countries’ real GDP (seasonally adjusted) uctuations into these three components and compare them with previous results. The main findings in the paper are: first, common factors originating in impulses stemming from changes in investor’s sentiment are relevant to explaining regional output comovements and the spillover effects between neighbors are significant. Second, volatility matters, and matters especially in the case of recent regional agreements. Supply shocks in Mercosur countries tend to be larger than in the US and European countries. Third, finance matters for both volatility and output/price dynamics. Accelerator effects may be important in explaining some features of the output/price dynamics that the standard models based on vector autoregression techniques are unable to account for

Keywords: Business cycle; Comovement; Mercosur; OCA; Policy coordination (search for similar items in EconPapers)
JEL-codes: C32 E32 F02 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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